Pension Problems: What's Next?
Illinois has the worst-funded pension system in the country, and the General Assembly is trying to determine how to resolve the problem. What will Illinois state employees be saying about their retirement plans 30 years from now, based on decisions made today?
If you’re still not sure how bad Illinois’ current pension crisis is, well - clearly you haven’t been paying much attention to Gov. Pat Quinn, who likes clichés to describe the problem:
- “This is our Waterloo.”
- “The iceberg headed for our ship.”
- “The fiscal cliff of Illinois.”
His bottom line? “We can accomplish something that will last far beyond our years here on earth,” the governor said.
Basically what you need to know is this. Illinois is $95 billion dollars in the hole when it comes to funding its state workers’ pensions systems.
It took decades for us to get in this fix. And it may take at least that long to get out of it. Which is why the governor often talks in terms of legacy.
Whatever is done to deal with pensions now - could have an impact on the state’s finances for the long haul.
It’s a big problem - one that has bedeviled Illinois politicians for years.
So the question now is, who will answer the call?
Democrat Daniel Biss, state representative from the north-suburban 17th District, is fairly new to the Illinois State House. When he was first elected, he volunteered to serve on the two pension committees.
“Of course, I didn’t understand that nobody wants to be on the pension committee,” he said, “I come from mathematics. So I don’t even know how to find the cool kids table in the cafeteria, but I’m pretty sure this isn’t it.”
Biss used to teach math, but not just any math. “It was Algebraic topology,” he said.
“What that was -- still is, without me -- is using algebraic structures to study higher dimensional geometric spaces.”
So if Biss can use algebraic structures to understand higher dimensional geometric spaces, then pensions should be a breeze, right?
“Well, let me begin by leveling with you,” Biss cautioned. “It has not been the case that the exact work I did as a mathematician has carried over directly into pension work.”
One of his colleagues also comes from teaching, but in a different field.
“Right now, I am teaching four sections out at Northern Illinois University,” Republican State Representative Mike Fortner said. “Three sections of Physics 253 and one section of Physics 210.”
He’s also a particle physicist at Fermilab who’s spent 20 years studying the nature of matter and looking at the mysteries of the universe.
“Seeing something that was growing too fast for our revenue,” Fortner said, “this looks like a math problem that you ought to be able to take a spreadsheet and unroll the spreadsheet and put in numbers and say, ‘What will it take to make the pension system sustainable?’”
Imagine Professor Fortner and Professor Biss are standing at a chalkboard with this problem: If funding proposal x is added to proposal y is added to proposal z – what will it take to zero out the $95 billion pension debt?
There are lots of potential answers, some more divisive than others, but let’s look at just
four of them.
Equation number one:
Fortner likes the idea of giving employees a choice to enter into a plan similar to a 401K, where the employee manages their own investment strategy.
Fortner says some university employees around Illinois already have plans like this – so the state can predict more easily what it’s getting into.
“They have a choice as to what system they are going into,” said Fortner, adding that he’s crunched the numbers and this idea can work.
Then again, many analysts say it won’t save enough money.
Equation number two:
Retired state employees currently get pay bumps each year to help them keep up with increasing costs. Biss says those pay bumps are expensive.
“I think everybody agrees you can’t solve the problem without having some impact on that,” he said. He wants to delay those pay increases to later in an employees’ retirement.
But Fortner says the state already has committed to those pay bumps – and they’d be hard to change.
Equation number three:
Arguably the most controversial idea involves changing who pays for pensions for downstate and suburban teachers. Currently, the state pays.
“If you were to blow everything up and restart,” Biss said, “you would never come up with the current system. You would never say the school districts don’t even have the retirement costs of their employees on their budget.”
So, this funding proposal gradually would make each school district pay.
But Fortner says school districts would need more cash, which would have to come from somewhere.
“In the districts I represent, most of the revenue has to come from the property taxes,” he said, “and property taxes are already pretty high. That’s one thing that the public pretty frequently says, ‘We don’t want to see higher property taxes.’”
And that brings us to the impact these will have on state employees who have been banking on these pensions. How do they feel?
“Truthfully, I don’t like the sound of a whole bunch of stuff,” said Patricia Ousley, who has worked for the state’s unemployment office in Chicago for more than 36 years. She’s also very active in the union and is president of Local 1006.
Ousley says she put in her money for retirement – but the state didn’t. And now she worries about all these new pension formulas and how they might affect someone like her, who’s looking to retire soon.
“I do have grandkids, and I spoil them when I can just because I can -- because they’re grandkids,” she said. “And you want to have money to do that, and I think once I leave here, being on a set income, those things will be depleted somewhat. I won’t be able to do what I do now.”
Ousley says she doesn’t know what it will take to make the pensions sustainable, but she suggests raising taxes.
Yet almost everyone agrees that raising taxes isn’t going to fix the problem, that pension costs are rising too fast for a fix like that.
So it’s likely to take more than one idea to get the state out of this jam, which brings up this little thing called the Illinois Constitution.
“You have to understand that we have a constitution which is very specific about how you deal with changing pensions,” explained John Cullerton, President of the Illinois Senate. “You cannot unilaterally pass a law to reduce someone’s pension.”
He has his own plan, which we’ll call:
Equation Number Four:
Cullerton wants to offer state workers like Ousley a choice: Take a cut in health care, or take a cut in pay bumps retirees get every year.
Cullerton says the beauty of his formula, which already passed the Senate, is that employees get to choose – which makes it the most legally sound option out there.
But that doesn’t fly with Biss, who would still have to vote for it in the House.
“On a human level,” he said, “if you’re asking someone to choose between health care and their pension, it doesn’t feel like a positive choice.”
So where does this leave things? It’s not just a math problem; it’s also a political and legal problem.
If the courts strike down whatever is approved anyway, some lawmakers worry they’ll end up back at the drawing board, essentially erasing all those equations for pension reform we talked about.
And that means future Illinoisans will be dealing with this for years to come.
Daniel Biss’s kid already has a head start.
“My older son is four years old,” Biss said, “and the other day he was saying to my wife, ‘Mommy, I just hope that I have a pension.’
“I don’t know if he knows what a pension is, but he knows two things: One, that there are things that make you nervous, and two, there are things that you hope are going to be there for you.”
Finally - something just about everyone can agree on.
Tony Arnold contributes to Illinois Public Radio reports